question on Indy math

12 replies [Last post]
troll's picture
Offline
Joined: 2004-11-29

Question for Indies:
What do most of you end up with net, after your payout, minus expenses that you incur which you would NOT incur if you were with a wirehouse?
I imagine it changes as the gross goes up, but lets say you are at an 85% payout (i assume thats about average?) doing 300k, or 500K.
What does the 85% end up looking like, vs the 27 - 40% net payout of a wire? 

troll's picture
Offline
Joined: 2004-11-29
snaggletooth's picture
Offline
Joined: 2007-07-13

Prato,
 
Based on my situation, I receive 83%.  The 17% that is given up goes to the BD and our Indy firm which pays for some office supplies and small staff.
 
I net about 75% on average after all other expenses.  Ticket charges are included in this.
 
My partner does a lot of individual equity business.  So his 83% ends up around 65% after ticket charges alone.
 
The expenses are up to you and can range from subscriptions to certain services, office supplies, technology, furniture, postage, etc.  This stuff gets deducted in the end, so I'd say the above numbers are pretty close to net net.

troll's picture
Offline
Joined: 2004-11-29

Joe, Snaggle, thanks for the replies.
Another question, just curious, about what are you're startup costs? Do most Indies start out in an office, working in the office of another indie, working from home, or some other arrangement. I would guess the big startup costs are related to the real estate?
 
What kind of compliance stuff do you do if you are in your own office?

Broker24's picture
Offline
Joined: 2006-10-12

Friend of mine is indy in my town, and I know he spent around 65K for startup. That included some buildout, deposits (lease, utilities), furniture, IT stuff (laptops, printer, fax, software, subscriptions, etc.), and some working capital to pay benefits and some wages to an assistant. He made very little in his first two months, so he ate through some savings (that was part of the 65K).

troll's picture
Offline
Joined: 2004-11-29
snaggletooth's picture
Offline
Joined: 2007-07-13

pratoman wrote:Joe, Snaggle, thanks for the replies.
Another question, just curious, about what are you're startup costs? Do most Indies start out in an office, working in the office of another indie, working from home, or some other arrangement. I would guess the big startup costs are related to the real estate?
 
What kind of compliance stuff do you do if you are in your own office?
 
Start up costs would obviously depend on the route you take.  For my situation, look at the Indy start up post on the Reg Reps dot com site.  Feel free to PM me on either site and I can give you details.
 
You will want to determine how you want your set up to be.  There are 1 guy shops, but then there's what I have, about 10 independents sharing office space with one "owner and principal".  The owner is technically the "on site" compliance guy, but essentially just makes sure laws aren't broken.  We do have a compliance department with our broker dealer.
 
You might talk to a business broker or fund wholesalers and see if they know of any indy's leaving the business.  Most likely they are selling their book and will have furniture they have to get rid of.  That could cut that cost down.
 
We all rent our office space, but there are some indy's that buy office condos if they can afford it. 
 
Regarding being independant, I don't know if there is a definable cultural shift, but I have found a lot of people seeking out independant advisors.  I would hope that this is actually happening.  I don't know if people are fed up with their big brokers or if they are hearing negative press or what, but I have found it ridiculously easy to sell against ML, MS, Smith Barney, UBS, and EDJ (although not a wirehouse).
 

troll's picture
Offline
Joined: 2004-11-29

Thanks for all your replies. This is something I've thought about from time to time, but cant say I'm seriously persuing it at the moment. But my curiosity is peaked.
Appreciate all the information.

CIBforeveryone's picture
Offline
Joined: 2005-07-12

85% is fairly accurate, but varies depending on ticket charges and admin to b/d, which is based on business style (mutual fund trades v. trails. v. advisory fees v. stocks/bonds).Use 5000-7000/month for overhead and you're in the ballpark. Then the math really does work out to a net net number. Speaking from experience, there's no "hidden" expense other than self-employment tax (15.3%) which a log forget. You're only paying 1/2 that now.

Indyone's picture
Offline
Joined: 2005-05-30

My net runs about 68%.  Start up was about $15K, which was mostly nice furniture and a good computer system for my office.  Monthly expense is about 5K for assistant, rent and everything.  My overhead and startup was probably less than most since I rent space from an established accounting practice and live in the low-cost midwest and share my assistant with the accounting firm.
 
On the FICA taxes, keep in mind that these only apply to wages and not draws.  This is a great equalizer, particularly if Obama gets in and removes the cap on social security taxable wages.

newnew's picture
Offline
Joined: 2007-02-23

Our newest office cost 60k. Running expenses 8k/mo for 2person office plus assistant 30 hours week.

WestH's picture
Offline
Joined: 2008-03-29

LPL advertised payout of 90% for most investments, 76.5% for stocks & fixed income, & 100% for insurance.  My last yr's personal gross was $600K+, plus 3% ratcheted bonus, so net adjusted payout after overrides & other ticket charges & LPL computer system fees, licenses, came out to be 89.4%.  That's what my LPL 2007 yearend 1099 shows.
 
Then add/minus office lease $26,400 for a 1650 square feet office, assistant salary $36,000, 3 AT&Tphone lines + DSL + unlimited long distance + 800# is $2,800,  Postage $1,500,  E & O insurance $2,000.
 
So net after above expenses, I still net 78.3%
 
I figured that you still pay the following on your own whether you're indy or w/ wirehouse:
life/health/disability insurance
cell phone
advertising
office supplies
 
I didn't add/subtract the value of the stock option plan, plus LPL stock bonus plan, aprox value +/- $250,000, which negates the $15,000 one time start up costs for funiture & supplies I paid 9 yrs ago.  LPL gave me a $20,000 no interest loan for start up, & paid for 3 Dell computers + server.
 
 

troll's picture
Offline
Joined: 2004-11-29

WestH - Thanks - great post!
Anyone else care to chime in on what the B/D did to financially help with startup / transition costs?

Please or Register to post comments.

Industry Newsletters
Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×